Esoteric setups aside, I'd be interested to hear about problems that people actually have encountered with this convention.

My partner has to manage having a 500MB quota on their home directory at work. A couple of times a month something decides to dump 300+ MB of data in there and break everything.

A 300MB file isn't a preferences file, though.

Apps use dotfiles or dotdirs for caching data. Think browser caches. That's the point of the standard... All the non essential caching data lives in one place and so is easy to prune when needed.

Even better; it means that your preferences will be literally portable.

Yep, until your program crashes because you weren't expecting a 10b file to run out of disk space.

Preferences files tend to be pretty small; I'd be rather surprised even if a 128MB thumb drive couldn't store them all. The bulk of the space will almost certainly be consumed by other things.

You cannot and should never assume that dotfiles are just preference files. They might be directories, and those directories might be chock full of big files — or worse, temp files that should really be in /tmp.